An Oracle White Paper
August, 2010
Enhancing the Construction Process for
Energy Companies to Increase ROI &
Improve Cash Flow
Oracle White Paper—Enhancing the Construction Process for Energy Companies to Increase ROI & Improve Cash Flow
Executive Overview
An increasingly complex and volatile business environment requires sound solutions for
asset-intensive energy companies seeking to mitigate risk, enhance efficiencies, and rein
in costs while planning, building, and commissioning capital projects. Enterprise Project
Portfolio Management (EPPM) solutions provide robust collaborative tools to help meet
those goals. Oracle Primavera’s holistic EPPM solutions maximize collaboration and
integration, real-time and uniform program visibility, and predictability in a way that goes
beyond traditional solutions to optimize the value of a capital asset throughout its
lifecycle.
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Oracle White Paper—Enhancing the Construction Process for Energy Companies to Increase ROI & Improve Cash Flow
Introduction: Energy’s Wild Ride
The world’s key asset-intensive energy industries face unprecedented challenges today. Perhaps
no industry is being battered more with the cross-currents of change than the energy industry.
After undergoing the wildest rollercoaster ride ever in petroleum commodity prices amid a
generation-defining economic collapse, the oil and gas industry now faces mounting pressures on
regulatory and fiscal fronts. On the utility side, power producers are in the thick of a heated
debate over the need—and costs—for transitioning away from fossil fuels. Not to mention an
unprecedented drop in demand.
After two years of recession, economic uncertainty still abounds. Some essential resources are
becoming increasingly scarce and costly, from raw materials to qualified personnel. Throughout
the asset-intensive energy sectors, most of the mission-critical institutional knowledge is still
concentrated in an aging workforce, creating a perpetual “brain drain” that was merely
attenuated—not alleviated—by the global recession.
The pending recovery will inherently increase the demand for energy and resources, placing
greater pressure on owner-operators in these key industries to improve efficiencies and rein in
costs in managing their capital asset projects.
Going forward, energy industry projects will face increasingly stringent regulatory and investor
oversight. This will bring elevated risks, growing productivity threats, and higher costs—in terms
of both project execution and lifecycle value.
Managing Capital Asset Construction
Faced with such hurdles, it is more important than ever that owner-operators in these critical
industries find a better way to manage capital asset construction projects and thus increase cash
flow and optimize the ROI delivered by their capital programs.
But those efforts proceed against a backdrop of structural change in the
architectural/engineering/construction (AEC) industry since the 1960s that has left that industry
more fragmented. In addition, AEC companies increasingly are resorting to a dogmatic reliance
on onerous contracts to manage this fragmentation. The ensuing threat of claims and litigation
forces all players into a stance of risk aversion. When avoiding risk becomes a key driver in
capital project delivery, innovation gets stifled, project costs jump, and productivity declines.
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Oracle White Paper—Enhancing the Construction Process for Energy Companies to Increase ROI & Improve Cash Flow
Those results are borne out by the data:
U.S. Department of Commerce statistics show a steady decline of productivity in the
construction industry from 1964 to 1998.1
A 2008 survey by Primavera Systems of AEC project managers and executives found
that 94% of respondent firms did not deliver all of their projects on time or on budget. 2
In the vast majority of cases where a project missed schedule or budget targets, the causes are
owner or contractor changes.
The goal then becomes one of effective project change management through enhanced
integration. The main obstacle to achieving this goal is a lack of tools for expediting project
participant collaboration and visibility.
Collaboration Stymied
As the construction project data show, it has become clear that risk-shifting does not work,
instead bogging down projects. The problems really start when the business’s capital plan is
dissociated from execution, i.e., when the owner-operator allows the project to regress into a just
a delivery plan that focuses on meeting contractor schedule and budget obligations but fails to
reflect the original project—and enterprise—goals.
Typically, the hurdles an owner-operator faces in achieving a business plan for a capital energy
project, building it, and commissioning it stem in large part from a lack of collaboration and
integration.
According to a 2007 study of the construction industry by McGraw Hill Construction, 3% of a
project’s cost relates directly to a lack of project integration. With a multibillion-dollar price tag
typical for many of the major projects in the energy industries, the added costs could amount to
tens of millions of dollars. But that’s small change compared to the exponentially larger impacts
of construction process breakdown and fragmentation that can devolve into lawsuits and even
project collapse.
Paul Teicholz, “US construction labor productivity trends, 1970-1998,” p. 427, Journal of
Construction Engineering and Management, September/October 2001.
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2
Primavera 2008 Project Management Report: Standardized Best Practices and Technology Adoption
in the AEC Industry.
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Oracle White Paper—Enhancing the Construction Process for Energy Companies to Increase ROI & Improve Cash Flow
Visibility Lacking
One reason companies fail to deliver projects on time and within budget is that they lack a
unified view of the schedule, financial data, issues, and metrics needed to adequately plan,
execute, and manage according to the schedule.
This lack of a unified visibility creates communication breakdown, hobbles scope and schedule
management, limits program management oversight, and increases risk. The impacts can be
profound, from cost overruns and schedule delays to lawsuits.
There can be hundreds of participants in a large project. The challenge is to keep everyone
informed, externally and internally, and to manage all of the moving parts, including scope
changes made within a secure data environment.
The lack of visibility prevents project leaders and executives from collaborating efficiently and
readily seeing the actual impact various actions and changes can have on the overall plan.
Recognizing the Need for a Technology Solution
Owner-operators are beginning to recognize the need for an integrated technology solution that
allows all construction project participants to be individually protected against claims but still
enables them to focus on project work with full collaboration and ready visibility across a
project’s scope.
Resource and energy industry operators are realizing that an integrated program management
(IPM) solution is needed to streamline construction. It must not be simply another tool to reduce
project risk, but be a vehicle for optimizing the asset lifecycle management process in the
planning, building, and operating of capital assets.
Both owners and EPCs can collaboratively use IPM solutions to plan, execute, and measure
capital projects, including capabilities to:
Track project, division, and enterprise cash flow;
Plan projects to capture full business requirements;
Forecast cost to completion and project completion date;
Anticipate issues and potential changes before they occur;
Measure project-specific and business-wide risk exposure;
Positively impact business plan/project ROI; and
Guard against claims and improve the change order process.
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Oracle White Paper—Enhancing the Construction Process for Energy Companies to Increase ROI & Improve Cash Flow
An IPM solution entails integrating personnel, systems, business structures, and practices into a
process that ensures tight collaboration of all participants to cut waste and enhance efficiency
through all phases of project planning, execution, and commissioning.
Information silos are removed, duplicate documentation is eliminated, and project risk is
minimized.
The Answer: Enterprise Project Portfolio Management
Solutions
EPPM solutions, like those from Oracle, can provide the underlying technology that enables an
owner-operator to track project status in real time, calculate ongoing project performance
metrics, and forecast project completion metrics so that they and other stakeholders—including
contractors and other service providers—no longer react to changing project needs but instead
avoid surprises and actively manage projects to successful completion and close-out.
Utilizing a holistic methodology such as IPM with EPPM solutions across a project portfolio
ensures a rigorous approach to the three main phases of the capital construction process:
Business plan development;
Design, procurement, and construction; and
Close-out and commissioning
Business Plan Development for an International Oil Company: Case Study
The most crucial aspect for the successful outcome of a large field development offshore project,
was determining the commercial viability of the development by gauging costs and risks in
developing the project schedule. The design, procurement, and construction of wells, subsea
facilities, pipelines, and a giant floating production, storage, and offloading vessel entailed
hundreds of thousands of activities and required construction in a number of international
locations. The company’s project planners had access to a networked Oracle database and to
Primavera project and risk software. The company used Oracle’s Primavera solutions to:
Identify risks such as local labor strikes, project scope changes, and interface issues with
multiple contractors;
Judge confidence levels for project success in order to form contingency plans; and
Evaluate cost exposures and adjust as needed
In sum, by using the Primavera software, the company was able to develop a reliable schedule
and risk probabilistic analysis so that they could make the right decisions and meet delivery dates.
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Oracle White Paper—Enhancing the Construction Process for Energy Companies to Increase ROI & Improve Cash Flow
Design, Procurement and Construction: Case Study
A large oil company in Asia targeted a number of areas in which it wanted to improve its project
construction management processes, notably shortening construction time while meeting project
requirements, maintaining project schedule control, and optimizing resources.
The company used Oracle’s Primavera EPPM solutions to:
Save about $10 million by reducing the number of ship days by 190 for four overseas
vessels delivering equipment and supplies, a 26% reduction;
Ensure project deadlines were met by developing more accurate construction plans and
by providing staff with real-time, web-based updates on schedules and costs;
Prevent costly overruns by closely monitoring project schedules and budgets;
Achieve smooth, multilevel implementations by coordinating plans and project teams;
Establish a special ship and site project plan to better utilize resources;
Provide staff with robust project information and project analysis reports, which
supported better decision making; and
Establish a central database to store and share project information
In utilizing the Primavera software, the company was able to implement a more effective project
management approach and improve their key resources in managing offshore oil and gas
construction projects.
Conclusion
In an increasingly complex and volatile business environment, asset-intensive energy and natural
resource industries will come to rely more heavily on an IPM approach to manage and mitigate
risk, enhance efficiencies, and hold down costs in executing capital projects.
With EPPM solutions, like those from Oracle, owner-operators will be able to deploy capital to
critical construction projects effectively and with as little risk as possible.
Oracle Primavera’s EPPM solutions optimize collaboration and integration, real-time and
uniform program visibility, and predictability on construction projects in a way that exceeds
traditional solutions to maximize the value of a capital asset throughout its lifecycle.
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Enhancing the Construction Process for Energy
Companies to Increase ROI & Improve Cash
Flow
August, 2010
Oracle Corporation
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Redwood Shores, CA 94065
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